Kentucky Court ReportUnofficial blog of Kentucky Court of Appeals and Supreme Court decisions, minutes, argument calendars and news - maintained as a public service by Louisville injury attorney Michael Stevens with law firm of Isaacs and Isaacs

Saturday, July 28, 2007

In a nonpublished decision styled Epling v. Liberty Mutual Insurance Co. 2005-CA-001695, 7/6/2007, the Kentucky Court of Appeals enforced a mediation agreement which had settled all claims of all parties over the unilateral mistake of Liberty Mutual. Although this decision has implications directly in the area of settlement agreements, it also recognizes that a party is a party for all purposes and for all claims arising from the transactions of the parties which is the subject of the suit or claim and may have implications in bifurcation and UIM advances (Coots v. Allstate).

In Epling, the decedent's estate pursued a claim for the decedent's wrongful death in a car accident asserting claims against the tortfeasor and the decedent's underinsured motorist carrier, Liberty Mutual. Liberty Mutual had also paid a total of $70,000 in added and basic reparation benefits as a result of the accident.

At the mediation, the parties had settled as follows:

The settlement was allocated with $235,000 for the wrongful death of Hiram McCoy; $10,000 for personal injury to Hiram McCoy; and $10,000 to Barbara McCoy for loss of consortium. Liberty Mutual contributed $5,000 of the total payment of $255,000. After reciting allocation of the settlement amounts and in connection with the total payment to McCoy, the Agreement provides, “settlement proceeds are exclusive of PIP.” This language is commonly used in releases to clarify that no other claims, offsets or subrogation rights will reduce the Plaintiff’s receipt of the total settlement amount.

* * *

However, the Agreement provides that it includes “all parties” and “all claims.” Specifically, the Agreement states:

IT IS HEREBY AGREED by and between the parties hereto that all claims contained therein between the parties to this Agreement are fully and finally settled with the Plaintiff receiving a total settlement of $255,000 from the defendants in exchange for which the Plaintiff agrees to execute a full and final Release of all claims including Underinsured Motorist Claims (UIM) against said Defendants arising out of this litigation and an entry of dismissal with prejudice, with each party to this litigation paying the parties respective court cost and attorneys fees. (Emphasis added).

* * *

Unfortunately, Liberty Mutual’s counsel was unaware of [pip] these payments and did not raise subrogation issues during mediation. Nor had Liberty Mutual’s counsel asserted any subrogation rights after being sued. It is now clear that no cross-claim was made by Liberty Mutual against any party for recovery of basic or added reparation benefits because counsel for Liberty Mutual was simply unaware of these payments.

Liberty Mutual raised the unilateral mistake and the release agreement to effect the mediation settlement agreement hit a snag.

However, the COA held the unilateral mistake was not enough to get around the clear and unambiguous language of the mediation agreement which settled all claims of all parties and required a dismissal with prejudice.

In holding Liberty Mutual's feet to the fire for representations made by it and relied upon other parties, Judge Dixon writing for the panel stated:

The problem of this case arose when Liberty Mutual and its attorney were apparently unaware of the earlier payments. This mistake on Liberty Mutual’s part was a subjective mistake. If Liberty Mutual was allowed to proceed with the subrogation at this time, it would be in derogation of the settlement proceeding that guaranteed the $255,000 payment to McCoy. It would also violate the long established rule against splitting a cause of action. Kirchner v. Riherd, 702 S.W.2d 33 (Ky. 1985); Egbert v. Curtis, 695 S.W.2d 123 (Ky. App. 1985); and Hayes v. Sturgill, 302 Ky. 31, 193 S.W.2d 648 (1946). These cases acknowledge a long, well established history of pleading that requires all claims that arise out of the same facts to be litigated together. To hold otherwise would result in piecemeal litigation. This rule is essential to efficient management litigation (sic).

Now, if the law is a moving stream, then one can only assume, expect and hope that the stream flows smoothly and in the same direction after accounting for the natural eddies and changes in the current. The courts have applied the rule against splitting a cause of action to statutes of limitation and now settlements, not to mention property damage claims and personal injury claims cannot be split either.

Now will the courts be consistent and that the "well established history of pleading that requires all claims that arise out of the same facts to be litigated together" apply with equal force and effect against the insurance company in a first party claim? When an insured sues on a contractual uninsured/underinsured motorist claim, he is required by this rule to assert all claims (including statutory and common law bad faith). If he/she is required to bring those claims, and there is obviously no prejudice to another party or tortfeasor, then there really should be no basis for splitting the trial and join all claims to the jury as an "efficient management litigation (sic)."

The facts are the facts, and each party in a lawsuit must live with those actions and conduct. The reasons for bifurcating a bad faith claim from a pure contractual first party claim don't hold water when compared to the underlying third party claims and claims against a tortfeasor identified at trial.

Now this adds another twist of the screw when the "official" reason for "advancing" funds under KRS 304.39-320 and Coots v. Allstate is to preserve subrogation rights.

Would it be legitimate for an undersinsured motorist carrier to advance the liability limits when there are no assets upon which to assert or protect those subrogation rights and the "apparent" reason for advancement would thus be "trial strategy" (eg., identifying a tortfeasor to the jury as the person ultimately bearing financial responsibility for the verdict and to insure bifurcation of any bad faith claims)?

As most may know, this is a lot of speculation and thinking outside the box. But the questions are nonetheless intriguing.